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What is the benefit of having a trust versus a will? We own our home, have a rental property and we have no debt. My husband and I are retired and both have IRAs, over $500,000 in the stock market and approximately $100,000 in CDs. We have three grown children – one is a stepchild. We currently have a will but are wondering if a trust is a better option.
– Judith
This is a good question that many people don’t stop to ask. Each has its purpose, and whether one of them is better for you – or if you should have both – is a matter of what you want to happen to your assets when you die.
Both a will and a trust can dictate the distribution of your assets, but there are key differences that might help guide your decision. There is much more to estate planning than the basics of wills and trusts, so I strongly recommend you consult with an estate planning professional for specific advice. (And if you’re looking for a financial advisor, consider finding one specifically with estate planning expertise.)
A will provides instructions to your heirs and the court for how to distribute any assets you have when you die and how you’d like your general affairs handled. For someone with minor children, you can also appoint a guardian through a will.
A key element is that your will takes effect upon your death. Wills, which are pretty simple and inexpensive to create, are a baseline document that everyone should have. If you don’t have a will, state law will dictate how to settle and distribute your estate. A will can make things much easier on your family. (And if you need help making a plan for your assets and eventual heirs, a financial advisor can potentially help.)
Trusts are legal entities that hold assets to be managed by a trustee for the benefit of the beneficiaries. There are many different types of trusts.
A trust can also determine how your assets are distributed at death. However, it does not always require that you pass away to go into effect. Instead, a trust takes effect when you transfer ownership of your assets to it. This can happen before or after you die. You can even fund a trust and receive income from it while you’re still alive.
Trusts do not go through probate, the legal process by which a court validates your will. This means your estate will be distributed in private. It may also expedite the process.
Trusts can also provide you with more control over how and when your assets are distributed. Common examples here are if you want to spread distributions over many years or require your beneficiaries to achieve certain milestones before receiving an inheritance.
